Negotiations, Mediations, and Game Theory
Link to be discussed: http://www.thelegalintelligencer.com/latest-news/id=1202738825434/The-Benefits-of-Game-Theory-in-Negotiations-and-Mediations?mcode=1395262324557&curindex=42&slreturn=20150911114551
Blog Post:
As described by the above article, “Game theory is the study of strategic decision-making between two or more parties where the decisions of one party are driven by the other party’s expected actions.” With this definition in mind, the article explains how in situations of conflicts, and specifically in negotiations and mediations, game theory can be used to first analyze the behaviors of the players in game and then to make the best decision on those behaviors. Before going into exactly how game theory can be used in negotiations and mediations, the article gives an example of game theory in action that is relatable to most Americans – Pete Carroll’s call in Super Bowl XLIX. While the ball was inches from the end zone, Carroll decided to go with the pass instead of the handoff to Marshawn Lynch. When considering the options of the two players (Seahawks and the Patriots) and their two options (pass or run and defend pass or defend run), it actually becomes clear that the pass was in Carroll’s favor (best response to the defensive line setup). And although the outcome was unfavorable, it was less risky in context of game theory.
After describing game theory in action, the article discusses the thought of what would happen if a party’s (player) offer in a negotiation considered the best it could do for both players (Nash equilibrium) in a negotiation or mediation – “If parties consider game theory principles when making settlement offers, more beneficial settlements become possible.” Because a mediator is privy to all of the relevant information from both parties, a mediator would be able to set up the mediation as a game and identify each parties best response, and develop and outcome that benefits both parties.
While the use of game theory makes sense in theory, it is unfortunately rejected by courts as an unreliable analysis for hypothetical negotiations. Furthermore, game theory and the Nash Bargaining Theory in the Federal Circuit is most commonly rejected (in hypothetical negotiations) unless the participant “establishes that the premises of the theorem actually apply to the facts of the case.” This being said, the authors of the article discuss how a skilled mediator could apply game theory in the development of offers and counter offers, resulting in a potentially more beneficial outcome (and reach that outcome faster).
Overall this article relates and connects very well to what we’ve covered in class, and specifically to game theory, Nash Bargaining Theory, and Nash equilibria. In discussing super bowl XLIX, the authors of the article set up Carroll’s decision choices as a game (just as we did for different attack defend games), and discussed how passing was in fact the best response in the play matrix. Furthermore in discussing mediations and negotiations, the article discusses the idea of best responses and Nash equilibria (both of which were two huge components of our class lectures and homework on game theory), and how judicial negotiations and mediations can actually be set up as games (similar to how we set up various situations as games) in order to figure out the expected final result. Finally, the article discusses how the use of game theory can result in potentially more beneficial outcome for both parties (or as we say players), which is exactly what we discussed as the purpose of Nash equilibria and the Nash Bargaining theory (no one player gets too large an advantage).